Skin in the Game: Accelerating M&A Activity Across Dermatology

Dermatology is one of the most attractive sectors for private equity investors seeking physician practice management opportunities. Driven by increased skin cancer awareness and the consumerization of skin care, the $20 billion dermatology sector is expected to grow by around 13% over the next several years.*

The dermatology sector saw unprecedented M&A activity in 2022, with a surge in both scaled platform transactions and large sponsors entering the space, as well as several mergers of regional leaders and strong continued add-on activity.

Here, senior bankers from the Harris Williams Consumer Group and Healthcare & Life Sciences Group reflect on 2022’s M&A activity and discuss ongoing value creation opportunities across the dermatology landscape.

Opportunities to Differentiate

Service mix expansion, provider recruitment, and digital transformation will be key focus areas over the next several years as platforms work to separate themselves from the rest of the field.

Service Expansion:

Historically, dermatology platforms of scale have been oriented toward medical and surgical services. However, the service mix paradigm has shifted substantially over the last five years in response to evolving patient preferences and heightened demand for cosmetic dermatology services. As a result, platforms are enhancing the breadth of their service offering to serve patients more holistically, creating a larger addressable revenue opportunity and the ability to increase organic growth.

Provider Recruitment:

The scarcity of board-certified dermatologists is both a favorable demand driver and a rate limiter for organic growth, with mid-level providers playing a larger role in bridging the imbalance between available dermatologists and patient demand. Dermatology practices are increasingly using these mid-level providers to create leverage for physicians and expand access to underserved populations. Like other specialties across the healthcare ecosystem, patients have grown more comfortable seeing mid-level providers who can effectively serve their needs with dramatically shorter appointment wait times. As dermatology platforms look to execute provider recruitment strategies at scale, mid-level providers represent a significant opportunity to accelerate organic growth and alleviate constraints on physician recruitment.

Digital Transformation:

Digital transformation has emerged as an area of emphasis in recent years, with many strategies for investors to use technology for growth. Digital strategies provide platforms with opportunities to better interface with existing patients, capture new patients through digital and social media marketing, and create an omnichannel patient experience. Technology can also drive workflow efficiencies that meaningfully improve the physician experience and enhance provider retention. Many consumer and technology-focused sponsors now view digital transformation as a unique angle to create value in the dermatology space and other physician practice management sectors.